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Using Purchasing Process Constraints for Short Term Savings
Have a transparent and well documented total purchasing process not only will save companies money relative to their peers but also used wisely can be a tool to capture additional short term cost control as business conditions may require.
Using Purchasing Process Constraints for Short Term Savings
- 1. Using Purchasing Process ConstraintsFor Savings Bill Kohnen CPO Conference Q1 2015 HMB California Ritz Carlton
- 2. Overview • An Efficientwell understood “Req to Check” process can increase efficiency and lower cost to process orders. In extreme circumstances tactical purchasing opex costs can be lowered 60% or more • Companies with a reasonable process in place spend 15% to 30% less than peers with no process in place • Another benefit of a well understood and transparent process is that as needed temporary adjustment can be made to – Reduce Cost – Improve Cash – Focus on spend with higher ROI
- 3. Typical Core Process RequestApprove Negotiate Purchase Order Receive Match Pay Requestor generates with backup and budgetary price Per Sig Authority Requestor Responsible Upon Approval Final terms and price negotiated PO issued by person delegated Purchase Authority Connection to Approved Req Physical Items on System Services by Requestor PO, Receipt, Invoice Per PO Terms
- 4. Thoughtful Introduction ofBottlenecks Request Approve Negotiate Purchase Order Receive Match Pay Require More Documentation Constrain Request to approved supplier and or agreements Require ROI hurdle or Operational Need Analysis Increase Signature Levels required Reduce Frequency of Approvals Require Site Manager/GM Review Prior to next Level Renegotiate all orders Attempt to leverage and combine all spend Increase Signature Levels required Reduce Frequency of Approvals Require Global Review Physical Items on System Services by Requestor PO, Receipt, Invoice Strict review of PO and Invoice Match with return of discrepancies to suppliers Strict Adherence to max allowable terms (+) DANGER Without Visible Management OF Constraints and Understanding of Them It Can Be difficult and Costly to Return to Normal State and Not Impact Supply Chain
- 5. Important Considerations • Shortterm metering of the process will deliver short term benefit • The actual amount of work required to manage this is only marginally less. Do not resources cut resources if the workload and spend will be back in 2 quarters • During the constrained process time have Purchasing team work to identify categories and areas where spending constraints can be sustained • Be sure to identify most Strategic requirements and DO Not constrain spend without clear review. Look to opportunities for these items to consume existing inventory. Communicate openly and directly with these suppliers about situation. • Supplier quality and reliability become more important with limits on materials ordering. • Total supply chain visibility is very important during this phase. If you are not clear on this to begin with you are risking long term damage with a cost higher than what you may save.